Although the recent drought experienced by much of northern Georgia a few a years ago pales in comparison to the ongoing drought in California, the response by each region’s government is equally misguided. The shortsightedness of the standard “solution” to a drought tends to scale with its severity. While we only suffered through time restrictions on outdoor watering, California has upped the ante to rather invasive levels in their pursuit of the “common good.” They are now all too happy to step into dear citizen’s shower and issue fines for lingering too long.

Droughts are a product of nature. Water shortages are a product of man; or, more precisely, a product of government. If a shortage is occurring in any market, it is guaranteed some form of price control (private or public) is in play. It is one simple lesson from Economics 101 that so many consistently fail to grasp: demand curves slope downward. Stated differently, prices (naturally) go up as supply decreases (all other things equal). But when part of that equation is artificially constrained (prices) the effects of the decreased supply are magnified, not ameliorated. When prices rise there is a two-fold socially beneficial effect: it (a) provides a rationing/conservation incentive (people only purchase that which they absolutely need) and (b) it sends a signal to everyone that a tidy profit can be had by supplying the market with that good. High prices are the market’s method of eliciting an economic immune response. As swarms of people respond to the wailing klaxons of above average profit, supply swells until prices begin to fall. It is this natural up/down demand/supply equilibrium that lets a market know where to devote more or fewer resources.

High prices are the market’s method of eliciting an economic immune response. As swarms of people respond to the wailing klaxons of above average profit, supply swells until prices begin to fall. It is this natural up/down demand/supply equilibrium that lets a market know where to devote more or fewer resources.

But governments don’t like the price system. It is they, not the market, who should be in control. Of course they have their image to protect and the last thing they want is to be accused of being an evil “price gouger.” So instead of allowing the price system to modulate usage, they instead impose egalitarian restrictions so that all may suffer “equally” the effects of their economic ignorance. In other words, they choose the hard way rather than the easy. They deploy sticks (restrictions, fines, penalties) that require resources to enforce compliance, rather than employing carrots (demand based pricing), that require zero resources to ensure compliance.

If prices are allowed to rise, then people will switch from being wasteful to having an incentive to use as little as possible and to seek out new water savings and new efficiencies, to boldly use less than any man before. For those concerned about how the poor would fare under rising water prices, it is entirely reasonable to expect that a base tier of minimum human requirement could exist alongside progressively rising prices for greater usage. There is little daylight between this and the progressive income tax system where the poor pay virtually nothing and the wealthy pay the most. Except with this system one’s “tax” (water bill) would be within their control. If one voluntarily uses less, they will pay less. The outcome of raising prices will be either (a) similar usage with a windfall income or (b) much reduced usage with similar income. If the former is the result, then one can continue to raise prices until (b) is achieved if that is the goal, or one can use the extra income to invest in systems that will increase the supply.

At least in California one of the reasons they are hesitant to raise prices is the crony-capitalist nature commonly found among governments. The largest user of water in the state is agricultural (83%) . The powers that be are afraid that higher water prices could disrupt the state’s economy by pricing California agricultural products out of the market. So once again the marriage between big government and big business ensures private profits at public expense (restrictions and fines). Wait, I thought government was supposed to protect the little guy? Well, while you ponder that little fantasy I’ll leave you with an apropos Milton Friedman quote – “If you put the federal government in charge of the Sahara Desert, in 5 years there’d be a shortage of sand.”